Mortgage Rates & What's Next

The federal reserve raise the rates for the third time in seven months. Is this the end of our low mortgage rates? Let's see how it will impact your home buying adventures, and refinancing plans. 

The fed funds rate is an overnight bank-to-bank lending rate.  This isn't the rate for the every day home shoppers, it's the rate the Federal Reserve uses to influence the economic rates. 

When there's been a slow down in the market, feds usually lower rates to help boost the economy. During the financial crisis of 2008, the Fed lowered rates all the way down to .25% and it basically stayed in that area until the end of 2015. 

After 2000After 2015, rates were increased in installments of .25% and have been raised four times since then. 

Currently the fed funds rate is 1.25%, but mortgage rates for Americans have not risen much and are actually looking at some of the lowest points of 2017. 

OneOne product that isOne product that is affected by Lee's fit hikes is the Home Equity Line of Credit, HELOC. 

These rates are based on two things, a set base rate is called a margin, plus a fluctuating right called an index.

HELOC's index is the Prime Rate, and the prime rate is what is directly effected by the Fed Funds. The prime rate is the fed funds rate plus an additional 3%.

Given the fed funds rate is 1.25%, this makes the prime rate at 4.25%.

So anyone with a HELOC has a rate of 4.25% plus their margin.  Margins are usually between zero and 3%, plus prime, and your margin is factored by your credit quality and wet you're borrowing relative to the price of your home.

For example, if HELOC rates rose 1%, your monthly interest cost on a $100,000 HELOC is rising by $83 per month. 

Traditional mortgages are staying low

Traditional mortgage rates are linked to trading in mortgage bonds, not the fed funds rate. This is why they are not spiking.

Most loans up to $425,000 are grouped into mortgage bonds which are traded every day in global markets. The rates will tumble when the price of the bond rise on economic uncertainty and vice versa.

The demand for the mortgage bonds has been quite strong, making the mortgage rates holding low.The bonds are looked at has safe investments when Washington DC policy, and economic strength around the world look  uncertain.

Where do we go from here?

Currently 30 year fixed mortgage rates are sitting just below 4%. They change every day but only in tiny increments. 

The Mortgage Bankers Association updates the rate projects monthly and this month (June) is expected to barely rise. They are also expecting a rate of 4.375% as we get closer towards the end of the year.

Their forecasts change every month as the rollout of the economic and political progress unveils. So it shouldn't be all that shopping if rates rise or drop by .375% at the end of the year.

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